1. On November 19, 2015, at 1:30 p.m., the Department of Revenue will hold a public hearing in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, located at 125 North Roberts, Helena, Montana, to consider the proposed amendment of the above-stated rules. The conference room is most readily accessed by entering through the east doors of the building facing Sanders Street.

2. The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation advise the department of the nature of the accommodation needed no later than 5 p.m. on November 9, 2015. Contact Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail lalogan@mt.gov.

3. GENERAL STATEMENT OF REASONABLE NECESSITY. The department uses data from the guides and valuation manuals listed in its rules to determine the trended depreciation schedules published in those rules. Personal property is valued annually and because the trend tables used to value personal property change from year to year, the department must provide taxpayers with notice of those changes and does so through the rulemaking process. The annual update to the trended depreciation schedules provides taxpayers with the current depreciation percentage for each of the personal property classifications for the upcoming year. The updates also clearly identify for the taxpayer how the department values and depreciates property over time.

ARM 42.21.157 requires the department to update the depreciation schedules of tangible personal property on an annual basis. The annual changes affect all businesses with tangible personal property. By annually updating the depreciation schedules the department accounts for the impact an additional year of wear and tear has on the value of tangible personal property. Small businesses would see a negative impact if these tables were not updated. Therefore, it is reasonably necessary to update the trend tables to reflect any changes for the upcoming year.

The department has considered the small business impact study requirements of 2-4-111, MCA, and determined that with the exception of ARM 42.21.123, the proposed amendments to the above-stated rules will not significantly and directly impact small businesses. For detail on how the proposed amendments to ARM 42.21.123 could significantly and directly impact some small businesses, see the supplemental reason statement for ARM 42.21.123 and also the department's small business impact analysis for this proposal notice, MAR Notice No. 42-2-946, located at revenue.mt.gov/rules.

This general statement of reasonable necessity applies to all of the following proposed rule amendments and has been supplemented as appropriate for any further amendments.

4. The rules proposed to be amended provide as follows, new matter underlined, deleted matter interlined:

REASON: The department proposes further amending ARM 42.21.113 to add a bottom row exclusively for older years in tables (a) through (c) to more precisely apply a 5 percent to 25 percent residual value as described in ARM 42.21.155(1).

(2) The market value for farm machinery and equipment shall be the "average wholesale" valuemost current quick sale as shown in the Iron Solutions, Northwest Region Official Guide, Fall Edition, for the year previous toonline version of the Green Guide known as the Equipment Watch, as of October of the year prior to the year of the assessmentappraisal. This online guide may be reviewed in the department or purchased from the publisher: North American Equipment Dealers Association, 1195 Smizer Mill Road, Fenton, Missouri 63026-3480at equipmentwatch.com or Dataquest, 1290 Ridder Park Drive, San Jose, California 95131.

(3) For all farm machinery and equipment that cannot be valued under (2), the department has developed a manual to value the equipment. This manual will be used in conjunction with the depreciation schedule in (5) when valuing farm equipment and machinery. The purpose of the manual developed by the department is to arrive at values which approximate average wholesalequick sale value. The department's farm machinery manual is hereby incorporated by reference. Customers can contact the department to obtain copies.

(4) and (5) remain the same.

(6) A trended average wholesalequick sale value shall be applied to equipment if:

(a) the equipment cannot be valued under (2) but an average wholesaleaquick sale value is available for the same make and model with a different year new; and

(b) the equipment cannot be valued under (4) or the value as calculated under (4) results in a higher value being placed on a piece of farm equipment than the last year listed in the current Official Guide mentionedguide cited in (2) for the same make and model. The trended average wholesalequick sale value for farm equipment shall be ascertained by trending the average wholesalequick sale as found in the guide in (2), for the same make and model with a different year new. The trend factors are the same as those mentioned in (4).

(7) If the methods mentioned in (2) through (5) cannot be used to ascertain average wholesalequick sale value for farm machinery and equipment, the owner or applicant must certify to the department the year acquired and the acquired price before that value can be applied to the schedule in (8).

(8) The trended depreciation schedule referred to in (2) through (6) is listed below and shall be used for tax year 20152016. The schedule is derived by using the guidebook listed in (2) as the data base. The values derived through use of the trended depreciation schedule will approximate average wholesalequick sale value.

YEAR NEW/ACQUIRED

TRENDED % GOOD AVERAGE WHOLESALE

20152016

80%

20142015

75%54%

20132014

66%48%

20122013

61%47%

20112012

58%46%

20102011

55%44%

20092010

48%43%

20082009

48%41%

20072008

47%40%

20062007

44%39%

20052006

41%38%

20042005

39%38%

20032004

35%38%

20022003

31%36%

20012002

28%35%

20002001

27%34%

19992000 and older

21%30%

(9) remains the same.

(10) This rule is effective for tax years beginning after December 31, 20142015.

REASON: The department proposes further amending ARM 42.21.123 to change the farm machinery valuation source. Each year the department performs valuation look-ups and calculates the depreciation trends for the coming year using values that are available at that time. The department has been using an online valuation guide for heavy equipment since 2010. That online guide now also includes farm machinery values.

Therefore, the department proposes transitioning to this single online source for valuing both heavy equipment and farm machinery beginning in 2016. The proposed transition to using the online Equipment Watch guide will save the department in excess of $20,000 in subscription fees annually because the proposed change eliminates the need for the department to separately purchase hard copies of the Iron Solutions Northwest Region Official Guide to use for valuing farm machinery.

Owners of farm machinery and equipment will notice a significant change, either up or down depending on the model year of the equipment, in the trended good percentage table during the first year of this proposed transition. For example, as proposed in the table amendments for 2016 using the online Equipment Watch guide, farm machinery and equipment acquired new in 2015 will see a trended percentage wholesale change from 75 percent good down to 54 percent good. At the same time, equipment acquired new in 2004 will have a trended percentage wholesale change from 35 percent up to 38 percent. However, after this initial transition year, the department expects future valuation differences to stabilize and the percentages in the chart to fluctuate minimally from year-to-year as they have historically.

42.21.131 HEAVY EQUIPMENT (1) The wholesale market value of heavy equipment shall be the most current quick sale as shown in the "Green Guide" and "Green Guide for Older Equipment" or the on-lineonline version of the Green Guide known as Equipment Watch, as of January 1 ofOctober of the year prior to the year of assessmentappraisal. This online guide may be reviewed in the department or purchased from the publisher and is incorporated by reference: Dataquest, 1290 Ridder Park Drive, San Jose, California 95131.

(2) For all heavy equipment which cannot be valued under (1), the department shall try to ascertain the original FOB (free on board value) through old heavy equipment valuation guidebooks. If an original FOB cannot be ascertained, the department may use trending to determine the FOB. The FOB or "trended" FOB will be used in conjunction with the depreciation schedule in (5) to arrive at a value which approximates wholesale value. The trend factors are calculated using the most recent Contractor's Equipment factors available in the Marshall & Swift Valuation Service Guide for the year of assessmentappraisal. The Marshall & Swift Valuation Service Guide, published by Marshall and Swift Publication Company, 915 Wilshire Boulevard, 8th Floor, P.O. Box 26307, Los Angeles, California 90026-0307, is adopted by reference.

(3) and (4) remain the same.

(5) The trended depreciation schedule referred to in (2), (3), and (4) is listed below and shall be used for tax year 20152016. The values derived through the use of these percentages approximate the "quick sale" values as calculated inprovided in the guidebooks listed in (1).

YEAR NEW/ACQUIRED

TRENDED % GOOD

WHOLESALE

20152016

80%

20142015

65%

20132014

62%60%

20122013

58%57%

20112012

52%

20102011

49%48%

20092010

43%46%

20082009

40%43%

20072008

37%38%

20062007

34%36%

20052006

33%34%

20042005

32%33%

20032004

29%30%

20022003

27%28%

20012002

25%26%

20002001

23%

19992000

22%23%

19981999

21%

19971998

21%20%

19961997 and older

19%20%

(6) This rule is effective for tax years beginning after December 31, 20142015, and applies to all heavy equipment.

REASON: The department proposes further amending ARM 42.21.131 to strike outdated references to hardcopy valuation guides in (1). The department has fully transitioned away from using the hardcopy guides to use of the online guide. This has improved efficiency and created subscription cost savings. The department further proposes amending (1) to clarify that heavy equipment assessments are based on values determined in the fall of the year prior to the year of appraisal and replacing the word "assessment" with "appraisal" to reflect the term currently used.

(4) For self-propelled wheeled work-over and service rigs, an additional 80 percent wholesale factor shall be used in determining market value in conjunction with the schedules mentionedreferenced in (2).

(5) The trended depreciation schedule referred to in (2) and (4) is listed below and shall be used for tax year 20152016.

YEAR/NEW ACQUIRED

% GOOD

TREND FACTOR

WHOLESALE FACTOR

TRENDED WHOLESALE % GOOD

20152016

100%

1.000

80%

80%

20142015

92%

1.000

80%

74%

20132014

84%

1.009

80%

68%

20122013

76%

1.0101.021

80%

61%62%

20112012

67%

1.0381.023

80%

56%55%

20102011

58%

1.0661.051

80%

49%

20092010

49%

1.0511.079

80%

41%42%

20082009

39%

1.0881.064

80%

34%33%

20072008

30%

1.1371.101

80%

27%26%

20062007

24%

1.2041.151

80%

23%22%

20052006 and older

21%

1.2651.219

80%

21%20%

(6) This rule is effective for tax years beginning after December 31, 20142015.

REASON: The department proposes further amending ARM 42.21.139 to make a grammatical revision in (4).

42.21.140 OIL DRILLING RIGS (1) Bids for new rigs will be solicited from manufacturers of oil drilling rigs to determine current replacement costs based on the depth rating listed below. For each depth rating listed below for oil drilling rigs, there will be two replacement cost categories. One category will represent current replacement cost of a mechanical rig and the second category will represent current replacement cost of an electric rig. Each rig as it is assessed will be placed in a value category based on its depth.

DEPTH CATEGORIES

Class

Depth Capacity

1

. . . . . . . . . . . . . . . . . . . . . . . . . . .

0 to 3,000 ft.

2

. . . . . . . . . . . . . . . . . . . . . . . . . . .

3,001 ft. to 5,000 ft.

3

. . . . . . . . . . . . . . . . . . . . . . . . . . .

5,001 ft. to 8,000 ft.

4

. . . . . . . . . . . . . . . . . . . . . . . . . . .

7,5018,001 ft. to 10,000 ft.

5

. . . . . . . . . . . . . . . . . . . . . . . . . . .

10,001 ft. to 12,500 ft.

6

. . . . . . . . . . . . . . . . . . . . . . . . . . .

12,501 ft. to 15,000 ft.

7

. . . . . . . . . . . . . . . . . . . . . . . . . . .

15,001 ft. to 20,000 ft.

8

. . . . . . . . . . . . . . . . . . . . . . . . . . .

20,001 ft. and over

MANUFACTURER'S

ELECTRICAL

MECHANICAL

DEPTH RATING

RIG R.C.N

RIG R.C.N

0 - 3,000 ft.

$

$ 285,209

3,001 ft. - 5,000 ft.

432,135

5,001 ft. - 7,500 ft.

868,250

654,750

7,501 ft. - 10,000 ft.

1,167,210

998,750

10,001 ft. - 12,500 ft.

1,265,500

1,130,600

12,501 ft. - 15,000 ft.

1,720,400

1,538,500

15,001 ft. - 20,000 ft.

1,990,100

20,001 ft. and over

2,036,047

The depth capacity for drilling rigs will be based on the "Manufacturers Depth Rating." These replacement costs will then be depreciated to arrive at market value according to the schedule mentionedprovided in (2).

(2) The department shall prepare a ten-year trended depreciation schedule for oil drilling rigs. The trended depreciation schedule shall be derived from depreciation factors published in the Marshall & Swift Valuation Service Guide. The "% good" for all drill rigs less than one year old shall be 100 percent. The trended depreciation schedule for tax year 20152016 is listed below.

YEAR NEW/

ACQUIRED

% GOOD

TREND

FACTOR

TRENDED

% GOOD

20152016

100%

1.000

100%

20142015

92%

1.000

92%

20132014

84%

1.009

85%

20122013

76%

1.0101.021

77%78%

20112012

67%

1.0381.023

70%69%

20102011

58%

1.0661.051

62%61%

20092010

49%

1.0511.079

51%53%

20082009

39%

1.0881.064

42%41%

20072008

30%

1.1371.101

34%33%

20062007

24%

1.2041.151

29%28%

20052006 and older

21%

1.2651.219

27%26%

(3) remains the same.

(4) This rule is effective for tax years beginning after December 31, 2014 2015.

(3) The depreciation schedules shall be determined by the life expectancy of the equipment and will normally compensate for the loss in value due to ordinary wear and tear, offset by reasonable maintenance, and ordinary functional obsolescence due to the technological changes during the life expectancy period.

(4) The trend and depreciation schedule referred to in (2) and (3) is listed below.

YEAR NEW/

ACQUIRED

% GOOD

TREND

FACTOR

TRENDED

% GOOD

20142015

92%

1.000

92%

20132014

84%

1.010

85%

20122013

76%

1.0181.023

77%78%

20112012

67%

1.0471.032

70%69%

20102011

58%

1.0801.061

63%62%

20092010

49%

1.0721.094

53%54%

20082009

39%

1.1031.086

43%42%

20072008

30%

1.1461.117

34%

20062007

24%

1.2091.161

29%28%

20052006 and older

21%

1.2651.225

27%26%

(a) and (b) remain the same.

(4)(5) This methodology is effective for tax years beginning after December 31, 20142015.

REASON: The department proposes further amending ARM 42.21.155 to add a bottom row exclusively for "older" years in all of the tables to more precisely apply "a 5 percent to 20 percent residual" value as described in (1).

42.22.1311 INDUSTRIAL MACHINERY AND EQUIPMENT TREND FACTORS (1) The trend factors will be used to value industrial machinery and equipment for ad valorem tax purposes pursuant to ARM 42.22.1306. The department uses annual cost indexes from the Marshall & Swift Valuation Service Guide. The current index is divided by the annual index for each year to arrive at a trending factor. Each major industry has its own trend table. Where no index existed in the Marshall & Swift Valuation Service Guide for a particular industry, that industry was grouped with other industries using similar equipment. The department will utilize the machinery and equipment trend factors that are set forth in the following tables:tables in (2) and (3).

(2) remains the same.

(3) Tables 1 through 32 represent the yearly trend factors for each of the categories.